Shipping: Start preparing to pay more

“Hanjin Shipping”, is a South Korean company and one of the world’s largest container lines, filed for receivership, a type of corporate bankruptcy, on August 31.

The company, which moves more than 100 million tons of cargo every year, faced an estimated $5.5 billion in debt as of late June. It means more than $14 billion worth of cargo got trapped in limbo. Some waited in ports around the globe because tug boat crews and cargo handlers worry they won’t get paid.

Roughly a dozen U.S.-bound ships could not pull into port and more than half of Hanjin’s fleet, the world’s seventh-largest container carrier, was left stranded. A U.S. bankruptcy court finally ruled September 9 that cargo owners could retrieve their goods.

Some shippers, had already urbanized Plan B. One of them is Samsung, went to court on Sept. 8 seeking access to$38 million in goods locked aboard two Hanjin ships. The tech giant had proposed chartering at least 16 planes to unload its products. Cost: $8.8 million, at minimum.

“Space is suddenly at a premium” it means every item costs more to ship. Rates could spike 50 % as soon as October. And container freight charges had already doubled since May – to $1,700 from $788 using 40-foot containers. Consumers should start preparing to pay more for holiday cheer this year. Experts predict that Hanjin ships won’t emerge from receivership until after the holiday season.

Even with the Friday court ruling, don’t count on this mess being straightened out too soon. The exorbitant rates are expected to be temporary. But for consumers, the timing couldn’t be worse. From shoes to steaks everything could cost more during the holidays.

It happened because, the entire container industry faces severe problems as it is undergoes a sea change. Shippers have been in big trouble since the 2008 financial collapse. Yet it is more than the fact that world trade has slowed. Multinational companies, for example, have focused on building local factories instead of shipping goods around the globe.

For the meantime, container companies vied to increase their fleets, so they overbuilt to a crushing overcapacity. These new ships were designed as oil prices soared, so vessels were massive and slow moving. But this doesn’t help when oil costs are so low. The glut of container space has made it ever harder for shippers to make money.

For example, Hanjin, has been losing roughly $100 per container shipped this year. Consider, one of the huge Triple E class vessels can carry roughly 18,000 20-foot containers. In addition, the entire container shipping industry has been slow to modernize.

Ships might have been the quintessence of high-tech when they launched in the 1950s, but today they often lack key software that could map the most efficient way to stack containers. Many haven’t installed sensors that help track each container’s exact location and contents.

This matters because the speed with which you load the ship and send it out to sea is crucial. So, if Hanjin problems were settled, don’t expect a clear forecast ahead.


One thought on “Shipping: Start preparing to pay more

  • October 31, 2016 at 8:44 pm

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